Fintech Startup Stripe Will Lend Money to Customers

(Bloomberg) — Stripe Inc. became one of the most valuable financial-technology startups by helping businesses accept online payments. Now it’s getting into lending.

The San Francisco-based company launched Stripe Capital on Thursday. The service will start in the U.S. and will make loans to businesses that are already Stripe customers, as well as merchants selling on services like Shopify that use Stripe to process payments. Stripe will use the data it has on customers to help determine loan eligibility and terms. The first target market will be smaller businesses that use Stripe, rather than larger customers, such as Amazon.com Inc., that already have access to cash.

Stripe Capital will start out by focusing on loans of about $10,000 to $20,000, according to Stripe Co-Founder John Collison. Much like Jack Dorsey’s payments firm Square Inc., which has its own lending service called Square Capital, Stripe has access to a wide swath of data on its customers. “We can constantly be looking at the businesses on Stripe, their cash flow, how they are growing, and who can be productively underwritten for a loan,’’ Collison said.

Tech companies have become an increasingly popular lending source in recent years. After the 2008 financial crisis, traditional banks pulled back on small business loans, prompting many companies to look elsewhere for capital. Almost a third of loan applicants turned to online lenders in 2018, up from 24% in 2017 and 19% in 2016, according to a Federal Reserve survey.

As the industry has become more digital, PayPal Holdings Inc., Square and even Amazon have introduced small business lending programs, as have a slew of startups including SoftBank Group Corp.-backed Kabbage Inc. and public company OnDeck Capital Inc.

Though lending poses risks, Stripe, much like other payment services, says the extra data it has on customers will give it a better idea of whether borrowers can repay loans. The company believes that edge will protect it from significant losses during an economic downturn.

“Lending is fundamentally a business that performs very differently based on where we are in the business cycle,” Collison said. “We’re doing as much as we can at the current point with models based on data that we can get from business performance and how small businesses performed in the financial crisis.’’ He added that the product was built with the possibility of an economic shock in mind, and that the company plans to be “appropriately cautious.’’